Kathmandu: Nepal’s finance minister Baburam Bhattarai is expected to announce the launch of the Nepal Infrastructure Bank, or NIB, in his budget speech on Friday. The bank will be modelled on India’s Infrastructure Development Finance Co. Ltd, or IDFC.

“We have got a go-ahead from the government to set up the NIB. This project is very critical for Nepal," said Radhesh Pant, managing director of Bank of Kathmandu Ltd and president of bankers’ body Nepal Bankers Association. “We expect the finance minister to announce this in his budget speech."

The Bank of Kathmandu is a member of the consortium of banks that will hold a 20% stake in NIB. India’s IDFC will hold a 20% stake, while the government of Nepal will own around 11% and a Nepalese private equity firm, another 20%, Pant said.

The Asian Development Bank, or ADB, International Finance Corp., or IFC, and Germany’s development finance institution DEG will each hold about 9.7% stake.

NIB will have a capital base of Nepalese Rs1,000 crore (Indian Rs637 crore), and will invest in infrastructure-related projects in the country.

ADB, IFC and DEG had commissioned New Delhi-based infrastructure advisory firm Feedback Ventures to prepare the feasibility report for NIB.

“The mandate for the study in the context of Nepal was similar to that of Rakesh Mohan’s committee on infrastructure in the late 1990s for India," said Akhileshwar Sahay, president of the infrastructure advisory division at Feedback Ventures.

The Nepalese government believes that setting up institutions such as NIB will help the country exploit its 83,000MW hydropower potential, which in turn will boost the Himalayan nation’s industrial growth.

Nepal faces an acute power shortage which has resulted in long and frequent power cuts in Kathmandu and other cities.

“NIB will be majority Nepali-owned and may list in India and Nepal," Pant said.

The bank also plans to raise money from the capital markets of New York, Tokyo, Frankfurt and London. “With multilateral agencies partnering for the project, it will make raising money easier from the international market," he said.

Pant said NIB will focus on short-term lending. “We cannot lend long term (more than three years), as beyond that there will be an asset-liability mismatch."

“NIB will take only a small equity in the projects to be developed," the bank’s coordinator, Maheshwar Prakash Shreshtha, said. “For each project, a special purpose vehicle will be created."